Take equity out of house to buy seaside rental?

[Mollylikestodance]

Hello,

My husband and I own one property - our family home.

It's not our 'forever' house, but it's been a great home for us for us - 4 bed, right by kids school and nursery (2 DC ages 5 and 1 so still v young) close to family, extended kitchen, driveway, up and coming area. There are some downsides - it's terraced, and it's on a main road (turns into a high street with a park and shops about 200 meters up. Very convenient but noisy).

We bought the house in 2015 and the area has seen a huge growth. We had £37,500 as a deposit and now have £270,000+ of equity in the house. (I know how lucky we are).

We are thinking about next steps -

Sell up and buy a 'forever home' in the area.

OR

take some of the equity out of the property and invest it into a small holiday flat on the coast - somewhere that we can visit but mainly it would be a holiday let.

WWYD? Has anyone done the latter?

Thanks for your thoughts!
x

After this year if financially able I would go for the holiday let!

Sorry posted too soon. The change of scenery has been a life saver this year for us and our family who’ve gone to the coast when allowed. Knowing the area and having it ready to go at a moments notice is great with younger kids.

How much do you have in savings and non-property investments?

What are your main motivations for wanting the BTL property option rather than just buying the home you want to live in forever? Have you researched the costs associated with a holiday let and the realistic return on investment you could expect? The UK holiday let season isn't that long, and you'd have to pay someone to manage the property and do the cleaning in between guests as well as budgeting for the agency fee and void periods. There is a LOT of wear and tear on holiday lets, so you'd have quite high ongoing renovation and replacement costs.

If you don't have significant other savings and investments, you'd be very over-exposed to the property market, and if it took a downturn you might be stuck with a family home you couldn't sell and a holiday flat you couldn't let out (as during the past year, for eg). Unless you have specific practical reasons for wanting a holiday let in a particular area (such as being close to extended family etc) and you have substantial cash/non-property investments to cushion you from the ups and downs of a holiday BTL it seems like quite a risky plan.

How much would the second property cost?

How much did you buy the house for, out of interest?

I don't think I would ever use equity in my one family home that housed my young children to buy a holiday let. Or actually for any other purpose! That's just far too risky.

You're talking about you using it for yourself, but how far away is it? Unless you could pop down last minute on a weekend when it wasn't booked, or you are fine with taking your children out of school to go on holiday then you'd be wanting to visit it at the same time that you'd need to be letting it out for income. Income you'd need for repairs, maintenance, insurance, paying cleaners, local contact person etc. Furnishing a whole other lot of accommodation won't come cheap, and holiday let standards are often higher than what we'd accept at home. What if you needed a MAJOR repair eg new roof or discovered a major damp problem after you bought it? Have you thought about how you'd fund those? Rental income may cover standard maintenance but major repairs will be more problematic.

In your position there is no way I'd consider this if I didn't also have a large cash reserve for unforeseen problems.

Also before even thinking about affording this, have you ALSO got 6 months (preferably a year) worth of savings in case of redundancy, ill health etc. Plenty paid into your pensions. Savings for the kids as before you know it they'll be wanting driving lessons, going to university etc.

Just to clarify, are you saying you now own the house outright and mortgage is paid off? If so, what has your "spare" mortgage money been going on the past couple of years?

So yes, to summarise, if you don't have a large cash reserve, don't even think about risking the roof over your and your children's head for the sake of buying a holiday let.

Maybe have a browse of some of the threads on here where people are saying what they would expect as standard in a holiday let.

Then don't do it

Things to think about.
You’ll have to pay the higher amount of stamp duty so for example if you bought a 200k place it would cost 7.5k.
You’ll be taxed on rental income.
I’ve just bought a second property which will be for my son to live in so have done lots of research into this.

Plus, having just spent an hour and a half trying to get hold of a builder to do some structural repairs on my own home, I would advise not to underestimate the sheer BALL ACHE of keeping a home properly maintained if you both work full time. I also can't get hold of a plumber for love no money so have been without a working shower for 5 months.

Now imagine trying to sort all that from a distance. Getting different quotes for jobs etc. Would you want to be there to meet the builders/tradesmen in person so you have some control? etc etc.

I have looked into it myself, and would not contemplate it from a distance. However, @SwimBaby's idea is something for me to think about.....

Hi all, thanks for all of the thoughts and insight - certainly a lot to think about of course.

To answer some questions:

• We have separate savings that would pay our mortgage/living expenses in our current house for roughly a year

• we have £20k so far in an account for the kids

• we both have pensions, critical illness cover, life insurance

• we would buy somewhere within 2 hours of our home, our motivation would be to be able to go for the weekend if it happened to be free

• we'd be looking around £200k mark for a holiday flat and if it wasn't let out could afford both our mortgages all year round (work being stable, of course).

So all in all the risk seems minimal from that perspective.

But, appreciate all of the hassle/work a rental property could bring, and the ups and downs
in the market, and tax and letting agency cost implications.

A lot to consider - was just interested in thoughts abs experiences if anyone had done the same.

@OverTheRainbow88 out of interest do you let your place out?

Thanks for all the thoughts everyone!

So would you remortgage your house to raise the 30% deposit needed and then get a buy to let mortgage for the remainder?

@SwimBaby yes that's right.

Having run the numbers with the bank we could take out enough to do a 50% deposit and then the rest buy to let.

It does of course come with risk, so it's a lot to consider!

No owning two properties is just selfish. It's people exactly like you who are driving property prices so high locals to 'the seaside' like myself can't get a foot on the ladder in our own areas. And the reason many seaside towns are ghost towns out of season, struggling to survive.
So many empty cottages.... but nowhere for us to live!

It’s doable but if it was me I’d prioritise getting my dream family home.

This is an odd one.

If you had strong emotional connection to a particular seaside location and really wanted to be able to spend time there a few times a year, then maybe it would make sense (although it would almost certainly be more cost-effective to build up a good relationship with the owner of a nice Airbnb in that spot and pay them directly for the times that you wanted to be there).

But I'm not getting a sense from your posts that you have strong emotional or practical ties to a particular place, more that you have a vague idea that it might be nice to have a pied a terre in some attractive seaside location. Which it possibly might be, but that doesn't make it an investment.

I don't understand why you'd put the possibility of your dream family home on hold for something that has no clear profit trajectory and could potentially be a huge amount of hassle. Financially it makes no sense - you would be massively over-exposed in property, which is a big risk, and the income potential of a seaside let in a location which it sounds like you don't have personal direct knowledge of is questionable at best. Also the point about the ethics of pushing up property prices and the damage to local communities through holiday lets/second homes in rural/seaside areas is a valid one.

IMO you would be much better off going all-out to buy your dream family home and investing any surplus funds in a range of good index-trackers.

I don’t think it’s that odd, my DH and I considered releasing equity a few times to buy a small property abroad but decided against it as I like to visits new places.
I think it depends how much you may want to get up the next rung of the property ladder where you live now. Your house has gone up 200k plus but a detached house may have gone up 300k plus so it’s all relative.

@Mollylikestodance

We don’t let it out, close family and friends use it but we are there most weekends and all
School holidays.

I wouldn't do that. Personally I'd get that mortgage paid ASAP - overpay whenever you possibly can - and then think about a second property in the future.

A few of DCs friends have holiday homes that the family go to most weekends. No weekend play dates or birthday parties. No spontaneous hanging out or sleepovers. No I’ll have the kids all day today if you can have them tomorrow. It was always difficult to see those children.

Agree with everything @Effzeh said. It’s not a sound investment decision and it’s morally questionable.

@Dobbyafreeelf

No owning two properties is just selfish. It's people exactly like you who are driving property prices so high locals to 'the seaside' like myself can't get a foot on the ladder in our own areas. And the reason many seaside towns are ghost towns out of season, struggling to survive. So many empty cottages.... but nowhere for us to live!

I agree with this. Everyone loves the idea of coming to the lovely seaside when it suits them and leaving a home empty out of season. Meanwhile locals - who provide the infrastructure and support systems to make it a safe and lovely place to visit - cannot afford a home because of all the second property owners.

I wouldn't do it - it sounds like you'll want to move from your current family home at some point, and then you'll have to pay double stamp duty.

Having a holiday let us a pain in the arse unless you have it fully managed for you (£££). I used to let my old flat out on Airbnb - never again, some people's standards are ridiculously high and they complain about everything, some people's are really low and they leave the place in a mess.

We go to ours throughout the year, including nov-feb! So it’s not left empty.

I have owned a holiday let. The holiday let season tends to be very short, more so in seaside towns. Anecdotally, I was told that places in the Lake District have the highest occupancy rates as the people that go there, go despite the weather! In my experience the rental income pays for the running costs but depending where it is, will probably not pay the mortgage too. It is not a financially wise investment.

Following my other post, I just want to mention that I already owned the property and lived there but had to move for work for a few years. I tried letting as a holiday let before deciding that it was better financially to go for a long-term let.